Reading the news about the Pacific thermal coal markets for the past two weeks, one can't help but be pessimistic about prices for the rest of 2013 and 2014. Newcastle benchmark price forecasts for the coming year were reduced several percent by two bank research groups; and the failed Japanese coal contract talks are re-starting next week with what looks to be an 8% cut from the price Australian suppliers anchored themselves to just last week. Perhaps this creates a temporary opening for alternative suppliers like us but, speaking generally, bodes ill for prices.
Japan
Short Term: Power producers and Australian coal suppliers will restart contract negotiations that timed-out on April 1st due to a major disagreement on price. The new prices could be up to $20 less per tonne than those agreed to this time last year (6,300kcal/kg Newcastle was $115 last year for April 2012 -March 2013 contract). If the parties can reach an agreement this time around, prices will likely be between $94 & $97 per tonne.
Long Term: Shinzo Abe went to Ulan Bator. Although the idea of thermal coal making it from Mongolia to Japan seems far-fetched right now, it is possible. According to the FT:
A big target for Japan is the Tavan Tolgoi coal deposit, one of the biggest in the world, located in the Gobi desert. Japan’s demand for fossil fuels has jumped since the March 2011 Fukushima disaster all but shut down its nuclear-power sector. Mr Abe urged Mongolian leaders to consider allowing Japanese trading companies and other groups to participate in developing the field. Japanese companies were initially left out of a 2011 plan to develop half of the Tavan Tolgoi deposit but those plans have changed and the government plans to build a railroad from the mine that could one day export coal to Japan via Russia.
Australia
In a vote of No Confidence in thermal coal markets, Rio Tinto is going to sell $3bn of thermal coal assets in Australia. Coal India is interested buying. See Japan section for details on failure of supply contract negotiations that direclty affect Australian supply.
Indonesia
The price for low-grade power-station coal in Indonesia, the world’s biggest exporter of the fuel, fell last week as Chinese stockpiles rose,according to a Bloomberg News survey, Jakarta Globe reported.
US Port projects
The Coos Bay project was all but canceled. It was the 2nd of 6 proposed Pacific NW coal terminals to be scrapped.
The Sierra Club plans to sue BNSF and six coal companies for polluting Northwest waters without Clean Water Act permit.
The two largest projects of the 6 proposed appear to have moved slightly forward. Platt's: "the two largest export coal terminals proposed in the Pacific Northwest cleared regulatory benchmarks Monday, according to the Washington State Department of Ecology. The state agency has hired ICF International, an environmental consulting company, to help manage the scoping process for the proposed Millennium Bulk Terminal in Longview, Washington, it said Monday .. . Additionally, the state agency released Monday a summary of the roughly 125,000 scoping comments it collected recently for the proposed Gateway Pacific Terminal."
Platt's list of projects with status:
| Terminal | Location | Capacity | Status |
| Gateway Pacific Terminal | Cherry Point, Washington | 48-54 million mt | Pursuing permits, environmental impact assessment |
| Millennium Bulk Terminals | Longview, Washington | 44 million mt | Pursuing permits, environmental impact assessment |
| Morrow Pacific | Boardman, Oregon | 8 million mt | Pursuing permits, environmental impact assessment |
| Port Westward | Port of St Helens, Oregon | N/A | Due dilligence |
| Project Mainstay | Port of Coos Bay, Oregon | 10 million mt | Abandoned |
| Port of Grays Harbor | Hoquiam, Washington | 5.5 million mt | Abandoned |
Long Term Outlook (China):"Rising hydro power output and swelling coal stockpiles are eroding China’s import needs, threatening returns for producers such as Rio Tinto Group (RIO) and Xstrata Plc (XTA) that are seeking to curb costs to offset falling prices. At the same time, output is increasing from Colombia and Indonesia, the world’s biggest exporter, according to a report last month from Australia’s Bureau of Resources and Energy Economics.“There isn’t a number two option after China,” said Michael Parker, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “You’re going to see a decrease in thermal-coal imports into China this year because we have a situation where coal prices are now falling at a time of year when they should be going up.”“The market is well-supplied in China,” Andrew Driscoll, the head of resources research at CLSA Ltd. in Hong Kong, said in an e-mail. “We forecast thermal coal imports down a little this year to 160 million tons.”. . . Deutsche bank reduced its 2013 estimate for Newcastle coal by 3 percent to $92 a ton.. . . Newcastle coal may trade within a range of $85 a ton and $95 a ton from 2013 to 2014 as exporters compete with domestic output in China, Macquarie Group Ltd. analysts including Colin Hamilton in London said in a March 27 note. The fuel may trade toward the bottom end of the range in the near term, they said.
IHS CERA predicts that Chinese coal imports will peak and then slip into a "prolonged" decline as moderating demand combines with increased domestic production. "Many companies that have targeted China as their strategic supply region in the long term may need to rethink that strategy," Xiaomin Liu, IHS CERA's associate director in Beijing, said. "Some international suppliers will be able to compete effectively, but others will struggle to find a competitive edge as China's market becomes ever more liquid." The US coal industry shouldn't continue to count on China as a major export market, according to a private research firm's recent report whose findings are drawing criticism and skepticism.
Sinopec Group, in an effort to find economical ways to tap Xinjiang's massive thermal coal reserves, is going to invest $11.3 billion to build the country's largest coal-to-gas project. The project will have annual production capacity of 8 billion cubic metres of gas -- and they already have the gas pipeline.
Here is a link to the 60 page Deutsche Bank report forecasting that China will return to exporting coal by 2017 (instead of 2025) IF they undertake measures need to get the air pollution problem under control. The analytic foundation of the report gives new meaning to the idea of building castles in the air -- but is still a useful exercise for understanding what what China would have to accomplish to have safe air to breath.
NYTimes: Air Pollution Linked to 1.2 Million Premature Deaths in China. ANNUALLY - and this is a conservative estimate.
In case you think the pollution and policy angle in China is much ado about nothing, here is another way to gauge the scale of China's coal consumption: within 400 miles of Beijing power plants burn almost as much coal in a year as does the entire United States electricity industry. Add to that lower emission standards, weather patterns and a geography that conspire to trap the pollution during winter, as well as sand storms originating on the steppes of the Gobi desert and you get the the worst air in the world, perhaps ever. There are recent pollution cost estimates ranging from 1.5% to 3.5% of annual GDP. Of course those estimates are just for current deaths. Someone should do a study discounting the costs associated with increased cancer rates, future cardiovascular disease-related deaths and the nascent epidemic in birth defects. The Chinese government will almost certainly have to act to curb coal use in the next few years and disperse industrial activity and generation clusters to the interior and west of the country - away from the ports.
Beijing exodus: Expats may be about to leave Beijing in record numbers as soon as the school year ends -- and rich Beijingers are accelerating their backup emigration plans.
The already strained-beyond-imagining Dongbei water supply is moving into crisis, thanks in large part to coal plants that consume too much water.
Other potential supply into China
Russia: Mr. Xi went to Russia to meet Mr. Putin. China’s Shenhua Group and Russia’s EN+ Group agreed to develop coal resources and related infrastructure in East Siberia and the Russian Far East with an eye to expanding Russian coal exports to China. China Development Bank to finance.
Mongolia is seeking someone to build a coal railway from Tavan Tolgoi mine (mostly coking coal) to China. Insisting on using russian gauge instead of standard gauge as if that will stop Mongolia becoming China's mineral colony.
Kyrgyzstan is aiming to become a major coking coal supplier to the Xinjiang Uygur autonomous region.